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December 19, 2009

MIAMI – Far-sighted investment decisions in Brazil, Colombia and Uruguay, made before the economic downturn in 2008 and subsequent drop in global trade, have set the stage for region-wide port and terminal expansion as the overhaul of the Panama Canal nears its 2014 completion date.

The canal expansion – which will alter the breadth and scope of sea trade in the hemisphere – is now entering its final stages. A consortium led by Spain’s Sacyr Vallehermoso and Impregilo of Italy submitted the winning $3.2 billion bid for new locks and the water-saving basins that will enable more and bigger ships to traverse the canal. Work is already underway throughout the Americas to make room for the larger vessels.

The hope is that the deeper ports, additional berths and streamlined maritime terminals will be ready when the volume of sea trade recovers. Total trade in Latin America and the Caribbean is projected to fall 13 percent in 2009, according to the United Nations Economic Commission for Latin America and the Caribbean, outstripping the expected 10 percent drop in global commerce.Many of the current projects would be impossible to finance today. Port executives from Uruguay and Cartagena, Colombia, for example, borrowed funds in 2007, when lending terms were easy. That year was “the year of the ports,” said Maria Kang, managing director for global infrastructure finance at the Bank of Nova Scotia.

“Banks were tripping over each other to lend money for port projects,” Kang told a panel at the SeaCargo Americas Conference in Miami in November. “Most of the banks that participated in those transactions are very gun-shy about participating in port financing today.”

The decline in trade and stricter standards for infrastructure projects have shut out most port authorities from potential sources of new funding, thereby quashing ambitious plans.

Brazil is a notable exception. The country owes its enviable position to robust commodity exports that have helped strengthen its currency and boost its credit ratings, according to John Price, managing director, market intelligence services, for Kroll InfoAmericas.

DP World, the global port operator controlled by the government of Dubai, announced in August a partnership with Brazilian construction conglomerate, the Odebrecht Group, to acquire a majority stake in Empresa Brasileira de Terminais Portuários, or Embraport, Brazil’s largest private terminal operator.

The new stakeholders intend to proceed with an Embraport project to build a private container terminal and a liquid bulk terminal to offload ethanol in Santos, the port complex in the state of São Paulo that contains multiple facilities and is the country’s largest container port and the biggest port in Latin America. The first phase of the Embraport project is slated for completion in 2012 at a cost of $500 million. In its first year, the facility is projected to handle one million 20-foot containers – know as TEUs – as well as two billion liters of sugar cane ethanol.

Santos, the port serving the populous and prosperous state of São Paulo, is already a hotbed of activity. In addition to Embraport, Brasil Terminal Portuário (BTP) and Barnabé-Bagres are building new terminals. The collective capacity at the various Santos ports is expected to increase from 3.5 million TEUs currently to 10 million TEUs once all the new facilities are fully operational. And the recent discovery of oil in the Santos area is expected to drive even more investment.

José Di Bella Filho, president of the Santos port authority, Companhia Docas do Estado de São Paulo, has announced plans to extend the facilities beyond the original boundaries, according to a Business News Americas report. At an estimated cost of $5.6 billion, the project would increase the port’s footprint from 7.1 million square meters to 13 million square meters, nearly double the length of the docks and add 45 new berths.

The most daunting aspect of much of the port development in Brazil and elsewhere in Latin America is the costly and time-consuming dredging. Once perfunctory endeavors, these operations now require in-depth studies and environmental assessments. As important as all the different projects at Santos project are to Brazil, no formal evaluation has been completed that identifies the best way to widen the access canal, which would allow for two-way ship traffic.

And while critical improvements and upgrades to the roads serving the port complex at Santos have been undertaken, the global economic crisis prompted the indefinite suspension of the construction of a rail line to São Paulo.

Although Brazil leads the way in port expansion, countries across the region have capitalized on early investments. But many projects were launched when the region was experiencing double-digit growth in trade. The sharp decline in trade has created overcapacity and eaten into profits, especially in container shipping.

Nevertheless, authorities in Brazil, Colombia and Uruguay remain confident that the 2 percent to 3 percent economic growth for their economies will be sufficient to attract carriers operating from Asia through the expanded Panama Canal. On the horizon is a newly deployed fleet of larger and more cost-efficient container ships – larger than 5,000 TEUs – according to Carlos Velez, vice president and managing director Latin America APL Limited. These ships can only call at deepwater hub ports, hence the rush to prepare deeper channels and install larger cranes. The larger ships will result in an increase in coastal shipping and services to shift Asian cargo from larger vessels at deep-water hubs to smaller ships that can deliver cargo to the shallower ports.

This increase could benefit coastal carriers, such as Brazilian-owned Log-In and Brazilian-flagged Aliance, a division of Hamburg Sud. Maersk Line’s Mercosul Line subsidiary could also receive a boost.

At the SeaCargo Americas conference in November, officials from the government of Uruguay and the Port of Montevideo announced their intention to build a second container terminal, part of a long-term strategy to become a regional hub for container transshipment. The first new container terminal was completed this year, as the result of $41.6 million loan from the European Investment Bank to Terminal Cuenca de la Plata S.A. and Nelsury SA.

South America’s west coast is also into its expansion mode. The Journal of Commerce has reported Chile’s Port of San Antonio, south of Valparaiso, will award two terminal concessions, one for grains and the other for containers. Construction is complete but the terminal is waiting for delivery of two new container cranes.

Peru’s new Muelle Sur terminal at the Port of Callao near Lima is scheduled to be fully operational by April 2011. Operated by DP World, the $730 million terminal is being built in three phases.

The plan involves creating a deep-draft facility, 1,268 meters of mainline berthage and 550 meters of side-feeder berth that would allow Callao to take up to four post-Panamax ships.

All this would also move Callao from being Peru’s national port to a more regional role. “We believe there’s an opportunity for Callao to emerge as a West Coast of South America hub,” said Michael Bentley, DP World’s director of Business Planning and Development for the Americas.